Consolidation and Review of the Financial Services Regulatory Legislation. Briefing Document on the implementation of the legislation and rule book

Transcription

1 Consolidation and Review of the Financial Services Regulatory Legislation Briefing Document on the implementation of the legislation and rule book June 2008

2 Consolidation and Review of Legislation Implementation Briefing Number 1 June 2008 The Financial Services Act 2008 has now completed its passage through Tynwald and is awaiting Royal Assent. Following Royal Assent, secondary legislation will be laid before Tynwald to bring the new Act into effect from 1 August The Financial Services Act 2008 (Appointed Day) Order 2008 will bring the Act and all secondary legislation, including the Rule Book, into effect for new licenceholders from 1 August Under transitional arrangements, existing licenceholders will continue to carry on regulated activities under their current licences and in accordance with the Regulatory Codes until 1 January Additionally the Antimoney laundering Part of the new Rule Book will also apply to existing licenceholders from 1 August From 1 January 2009 existing licenceholders will receive their new licences and at that time the new Rule Book will apply in full. This is in line with the proposals outlined at the Manx Museum in January The Rule Book is currently available on the Commission s website in draft form, with the final version to be published before 1 August. The Commission is currently working on the accessibility of the Rule Book in order to allow licenceholders to filter those rules that apply to the specific class(es) of licence that they hold. Guidance is also being drafted to accompany the rules. The Commission has asked a number of practitioners to join an informal CAROL Implementation Group which is acting as a sounding board for proposals, and contributing its own suggestions, for example on where guidance would be useful. By doing this, the Commission aims to identify potential difficulties for practitioners at an early stage and to smooth the implementation process. This document outlines the Commission's plans for Issuing licences under the new Act to existing licenceholders; Dealing with exceptions and modification of rules when issuing licences; Registers of licences; and Annual compliance returns. The Commission intends to brief its licenceholders via its website on implementation as the project progresses and further briefing documents will be issued in the Summer and Autumn

3 Whilst this is primarily a briefing document rather than a consultation document, if you have comments or questions, then please address them to: Paul de Weerd Senior Manager - Supervision Financial Supervision Commission PO Box 58, Finch Hill House, Bucks Road, Douglas, Isle of Man, IM99 1DT British Isles Tel: Fax: paul.deweerd@fsc.gov.im - 3 -

4 PART 1 - ISSUING LICENCES UNDER THE NEW ACT TO EXISTING LICENCEHOLDERS The Commission intends to issue licences under the new Act to its existing licenceholder base dated 1 January This creates a need to plan for: Establishing the content of a new licence that corresponds as closely as possible to the licence(s) under the legacy Acts; Approving the new licences; and The physical production and delivery of licences. At its simplest, a like-for-like licence could be granted. For example a Category 1 CSP licenceholder could be granted a Class 4 licence. However, some situations are more complex. Examples include: Licenceholders that manage other licenceholders will also need a Class 7 authorisation in order to continue their existing activities; Banks that currently conduct investment business on an exempt basis under their Banking licence will be required to obtain a Class 2 or Class 3 authorisation in addition to their Class 1 Deposit Taker licence, in order to continue their existing activities. As at 31 March 2008, 436 licences were current and these had been granted to 312 licensed entities. The production of licences and their agreement with licenceholders will be a substantial task, because of the numbers involved and because of the changes to the detail of many licences. The following timetable is proposed: Date By 1 September 2008 By 30 September 2008 By 30 November 2008 December 2008 Event Commission to issue list of proposed authorised activities to each licenceholder Licenceholders respond and make any requests for excluding or modifying the application of rules Make and issue decisions Licenceholders have an opportunity to proof-read licences (or exceptionally 28 days to apply for a Review) 1 January 2009 Issue new licences to all licenceholders (except where a Review is pending) The proposed transitional provisions allow for existing licences to run for 12 months from the commencement date of the legislation, so there would be time for a Review to be determined, in the event that one arose

5 Shuttle applications The terms of the transitional arrangements formally require licenceholders to apply for a licence under the new Act. However, the actual process should be seamless and no application fee or additional licence fee will be necessary for these applications. We plan to send out a proposal in the form of a shuttle document. The licenceholder will sign and return the shuttle form; either accepting the proposed terms of the new licence, or proposing revisions if the licenceholder believes that the Commission's draft does not accurately reflect the existing regulated activities. Changes to your regulated activity after 1 August 2008 After 1 August 2008 the Commission will no longer be able to issue new or amended licences under the old Acts (although we will be able to make purely administrative changes to reflect a change of name or address.) If you amend your business plan after the new Act comes into effect on 1 August and need to be issued with a revised licence, you will need to apply for and be issued with a licence under the new Act. However, we do not want to trigger changes to compliance arrangements, so such existing licenceholders would continue under these circumstances to operate, by direction, in accordance with the existing Regulatory Codes until 31 December

6 PART 2 - EXCEPTIONS AND MODIFICATION OF RULES As with the previous legislation, the new Act allows the Commission to apply conditions to a licence or apply directions which restrict a licenceholder s activity. However, the new Act also allows the Commission to make exceptions to, or modify, the application of rules to individual licenceholders. As this will be less familiar to licenceholders, this part of the briefing is intended to set out plans for handling of such exceptions or modifications by the Commission. By way of background, rules can be modified or disapplied in two ways: Clause 7(3)(b) of the Financial Services Bill 2007 states that the conditions that may be applied to a licence include that the Rule Book shall apply to that person with such exceptions and modifications as may be specified. Conditions are matters of public record. Clause 18(2) of the Financial Services Bill 2007 states that the Commission may direct that the Rule Book or its provisions are not to apply to a licenceholder. Directions are private between the Commission and the licenceholder. This paper uses waiver as a generic description of a rule being modified, whether by a condition or by a direction. Tests that would apply in considering any application Burden of evidence 1. The Commission may decide of its own volition to issue waivers or modifications where it considers it desirable to do so. 2. The Commission may decide to issue waivers or modifications at the request of a licenceholder. Where a request is made, the burden should be on the licenceholder that seeks a waiver or modification to demonstrate that the waiver or modification is desirable and serves some useful purpose. Customer protection 3. The Commission would not expect to issue a waiver or modification where to do so would be contrary to its statutory objectives. For example, it should not materially reduce the protection to the customers of the licenceholder, or weaken defences against financial crime. 4. If the Commission issued a waiver or modification, it would normally use a condition, thus making that information publicly available. However, if the Commission imposed a requirement which was more onerous than that normally imposed by the Rule Book, this would normally be in the form of a direction. Transparency 5. Exceptions and conditions that modify rules will be published on the Commission s website as part of the register of licenceholders

7 Fairness and avoidance of regulatory arbitrage 6. The Commission would not expect to issue a waiver or modification where to do so might give a licenceholder an advantage over its competitors on the Island. However, it might issue one to prevent a licenceholder being disadvantaged or to achieve an equivalent result where a rule specifies a course of action which the licenceholder cannot follow. For example, a waiver or modification might be issued to allow a sole trader, partnership or LLC to achieve equivalent standards to those applying to a company. A waiver or modification would not be issued in respect of a rule that applies to an activity that a licenceholder does not conduct. Such a waiver or modification would serve no useful purpose. Timetable As far as possible, the Commission will notify in advance any generic waivers and modifications that it proposes to issue to a group of licenceholders for example to sole traders, partnerships or LLCs. The Commission proposes to set a deadline of 30 September 2008 for receipt of applications from any licenceholder that is seeking a specific waiver or modification to be in force by 1 January The Commission will aim to determine by 30 November 2008 any applications received by 30 September

8 PART 3 - REGISTERS Background The Commission s obligation to keep registers is broadly drawn. It allows for flexibility in deciding what the register should contain and how it is delivered. The Commission is obliged to make regulations which determine the content of the registers and the times and manner upon which they may be inspected. It is intended that the registers should be delivered via the Commission s website. The registers will be accompanied by supporting or explanatory material relevant to the use of the register. For example, members of the CAROL Implementation Group have suggested that an accompanying statement should refer to any licence under the previous Acts which was held prior to 1 January Proposed Content of the Register (a) (1) Current licenceholders: The register regulations will specify that register of current licenceholders will contain information that is similar to the existing registers: The name of the licenceholder Registered office address Business address in the Isle of Man (if there is no registered office in the Isle of Man or if the registered office is not at a place of business of the licenceholder) Descriptions of licensed activities as currently in existence Any conditions granting exceptions or modifications to rules which are currently in force Any other conditions which are currently in force The date upon which the licence was first granted and a reference to any previous licence A reference number for the licence If the licence is suspended, that fact Equivalent information to the above, concerning the licence since it was first granted, or an explanation of the process by which users may enquire of the Commission concerning the history of the licence (a) (2) Former licenceholders: The register regulations will specify that register of former licenceholders will contain: The name of the former licenceholder at the date on which the licence ceased Registered office address - 8 -

9 Business address in the Isle of Man (if there is no registered office in the Isle of Man or if the registered office is not at a place of business of the licenceholder) Descriptions of licensed activities at the date on which the licence ceased Any condition granting exceptions or modifications to rules at the date on which the licence ceased Any other conditions at the date on which the licence ceased The date upon which the licence was first granted (and a reference to any previous licence) The date upon which the licence ceased A reference number for the licence If the licence was surrendered, that fact If the licence was revoked, that fact Equivalent information to the above, concerning the licence during the period for which it was current, or an explanation of the process by which users may enquire of the Commission concerning the history of the licence Supporting or explanatory material relevant to the use of the register (b) Classes of exempt persons The regulations will specify that a register of classes of exempt persons should contain: The nature of the regulated activity to which the exemption applies A summary of the nature of the exemption The Order or other enactment under which the exemption was granted Supporting or explanatory material relevant to the use of the register Nominee Companies The Commission envisages the inclusion in the register of a list of those subsidiary companies of each licenceholder which are exempt from licensing as nominee companies under the terms of the legislation. This would be an extension to the present register, and would be more useful to users once information is being collected more frequently under the new rules. The Commission is asking industry associations for suggestions about how best to present the information in this part of the register. Subject to the feedback that we receive, we are currently considering listing subsidiaries that are incorporated in the Isle of Man or are companies on the F Register and listing the regulated activities that they conduct under an exemption. We are also considering providing a search facility, linked to the licenceholder search. If the register was to be extended to include nominee companies, the register regulations would be revised accordingly

10 Historic Material The form in which historic material is presented is subject to further consideration. The ideal solution would be for that information also to be provided via the website. However, this could require enhancements to systems, which would need costbenefit evaluation. A survey of Commission staff identified only a handful of requests for such information being made over the past year. Consequently it is intended that the regulations should permit the information to be provided either via the website, or upon request

11 PART 4 - ANNUAL COMPLIANCE RETURNS The Commission selected the proposed starting date for compliance with the full Rule Book of 1 January 2009 partly in order to minimise the number of licenceholders with a financial year that straddles the implementation date. Year ends in late 2008 All licenceholders who have a year end on or before the 31 December 2008 but are due to submit an annual return in early 2009 will be able to submit a return using the old form (or forms if they have more than one licence) under the existing Regulations. This applies to financial year ends in September, October, November and December Year ends in 2009 The new Annual Compliance Return includes questions that are geared to compliance with the new Rule Book. Hence, it could be difficult for a licenceholder to complete the new form in respect of a financial year in which it has operated partly under the new Rule Book and partly under the previous regulatory codes. The Commission is considering how best to handle returns for financial years that straddle 1 January 2009 (that is financial years ending from January to November 2009). We plan to consult further with the CAROL Implementation Group and publish proposals in due course